In the recent case of JRT Developments Ltd (JRT) v TW Dixon (Developments) Ltd (TWD)  the TCC has shown that parties seeking to enforce "smash and grab" adjudication awards will not be able to do so in circumstances where it would be manifestly unfair.
Of interest and significance in this case is the fact that the parties in dispute are related. JRT is owned and controlled by Mr Jonathan Woodcock, the nephew of the sole shareholders and directors of TWD, Mr and Mrs Dixon. Mr and Mrs Dixon set up TWD, with Mr Woodcock's assistance, solely for the purposes of developing 14 new homes on farmland near Market Drayton in Shropshire. They are elderly and have no prior involvement in the construction industry.
JRT and TWD entered into a JCT Minor Works Contract with Design 2011 Edition ("the JCT Contract") and a socalled 'Commercial Agreement' ("the Commercial Agreement"), both dated 22 June 2016, for the design and construction of the new homes.
The Commercial Agreement confirmed that JRT was to manage the project and provided that:
"The development will be constructed on a cost plus basis covered through funding of means (sic) of the Communities and Housing Association. The associated costs and overheads of TW Dixon will be covered by JRT Developments".
"The Properties will be delivered at cost plus the business overheads of JRT. Agreement of profit share...is to be split against a 50:50 ratio of gross profit minus the plot value and the associated build and sale costs"
Clearly, the relationship between the parties was unusual; the dealings between them were very informal so as to be more like that of joint venture partners than that of employer and contractor in an arm's length construction contract. Mr Woodcock even arranged the funding for the project (a loan from the Homes and Communities Agency (HCA)).
Throughout the duration of the project JRT made no direct requests for payment from TWD; rather JRT liaised direct with HCA as funder, who made regular payments to TWD based on periodic valuations of the work. JRT issued invoices to TWA for amounts approved by HCA, which were then paid using the funding provided.
The relationship between the parties gradually deteriorated due to cost overruns and delays, as well as alleged actions on the part of JRT. The JCT Contract was eventually terminated by JRT on 13 June 2019. The parties then engaged in informal dialogue as regards the resolution of outstanding payments, said to be in the sum of £952,578.97. This dialogue continued until JRT issued a Disputed Payment Notice under the terms of the JCT Contract, on 19 September 2019. It is evident that TWD failed to understand the significance of the Disputed Payment Notice and did not serve a pay less notice as required.
On 14 November 2019, the first day on which it was able to do so, JRT referred the dispute to Adjudication. The adjudicator decided in favour of JRT, concluding that the Disputed Payment Notice was valid and that TWD must pay as a result of having failed to serve a pay less notice. JRT issued proceedings and sought summary judgment to enforce the decision. TWD subsequently brought a claim under Part 7 seeking a stay of enforcement on basis of 'special circumstances', being:
- The probable inability of JRT to repay the judgment sum at the end of the substantive trial - Wimbledon Construction Company 200 Ltd v Vago 1 ; and
- the risk of manifest injustice if no stay was granted, as a result of TWD's inability to pay and all the circumstances of the case - Hillview Industrial Development (UK) Ltd v Botes Building Ltd 2 ) and Galliford Try Building Ltd v Estura 3
Inability to repay the judgment sum – Wimbledon Construction v Vago
To meet the test set out in the Wimbledon case, TWD needed to show:
- The probable inability of JRT to repay the judgment sum at the end of the trial in TWD's claim.
- That JRT's financial position was not the same or similar to its financial position at the time the JCT Contract was entered into (22 June 2016).
- That JRT's financial position was not due either wholly or in significant part due to TWD's failure to pay the sums awarded in the adjudication.
HHJ Watson found that, whilst JRT was not technically insolvent, it was "highly probable" that JRT would be unable to repay the judgment sum, thus satisfying the first limb of the Wimbledon test. She also concluded that, having reviewed JRT's changing financial position during the relevant period, and taking onto account factors such as JRT's significant loans, the management of its finances, arrangements with creditors and lack of profit, the financial position of JRT was indeed substantially worse than when the JCT Contract was entered into. As such, JRT posed a significantly higher financial risk than it did in 2016, thus satisfying the second limb of the test. Finally, HHJ Watson found that JRT's financial position was not caused either wholly or in significant part by TWD's failure to pay the sums awarded by the adjudicator. TWD therefore successfully demonstrated all three limbs of the Wimbledon test.
The principle of staying adjudication enforcement in situations of manifest injustice was first established in the case of Galliford Try Building Ltd v Estura Ltd. Estura had failed to serve a pay less notice, leading to an award in Galliford Try's favour. Estura would have been unable to pay the award in full pending a final valuation of the works, hence the court deeming this unfair and granting a partial stay in execution.
In the similar circumstances of the current case, the TCC found that TWD would not be able to pay any part of the judgment sum without rendering itself immediately insolvent and being forced into liquidation. HHJ Watson noted:
- The highly unusual project funding arrangements, whereby the relationship between the parties was not that of employer and contractor at arm's length.
- During the entire three-year course of the contract, JRT limited its claims for payment to the sums recovered from HCA. The payment terms of the JCT Contract were ignored by both parties. It was only after termination that JRT sought to rely on the contractual payment provisions, clearly intending to trigger a referral to adjudication and an award of the full sum claimed. HHJ Watson commented: "these circumstances appear to me to be relevant to the fairness of enforcing the judgment sum."
- Whilst the true valuation of any sums due to JRT was an issue for trial, it was likely that at least substantial elements of JRT's claim for payment were not properly due to it at the time it issued the Disputed Payment Notice.
Accordingly, HHJ Watson concluded that it would be manifestly unjust to TWD if the judgment was not stayed. TWD would be forced to pay a potentially overinflated sum, as a result of which it would be forced into liquidation and thus unable to pursue its claim for a declaration that the Disputed Payment Notice was not a valid payment notice. The TCC therefore granted a stay of enforcement pending trial.
Whilst the general rule remains that an adjudication award will be enforced, it is clear that the TCC will make an exception in rare cases where manifest injustice can be shown. It is interesting to see that manifest injustice does not always need to relate to inability to pay; in this case the TCC clearly took into account the unusual relationship between the parties, their conduct throughout the duration of the contract and the unfairness of depriving TWD of the opportunity to obtain a final assessment of the true account. It is evident that the Court will give short shrift to parties seeking to take advantage of the adjudication process in situations where to do so is clearly unfair.
In the current economic climate, where the industry is unfortunately likely to see increased insolvencies, the case serves as another useful reminder of the limitations of "smash and grab" adjudication.
1 EWHC 1086 (TCC)
2 EWHC 1365 (TCC
3 WEHC 412 (TCC).
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